Meaning of California Civil Code Section 1542

A party to a contract signs a general release.
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California Civil Code Section 1542 concerns a general release. A general release is a document in which one or more parties release one another from claims, lawsuits and threats of lawsuits. A general release can be one-sided and release only one party. Alternatively, it can be mutual and release two or more parties.

A creditor may use a general release as an instrument to forgive a debtor for one or more debts. A creditor usually offers to sign a general release to get a debtor to pay off a portion of their debt. An employer may use a general release to prevent recovery in severance and settlement agreements.

Example of a General Release

Section 1542 provides that a general release does not extend to claims that the creditor or releasing party does not suspect to exist at the time of executing the release. The statute further provides that if the creditor knew about those claims, the claims would have materially affected the creditor’s settlement with the debtor or released party.

For example, a shopper owed a retailer $500 for purchases on a debit card managed by a third party, and the debit card company was late submitting its records for the $500 in purchases to the retailer. The shopper also owed a $200 debt to the retailer for damage done to the store. A general release signed by the shopper to cover the damage done to the store should not be understood to erase the $500 debt of the shopper on the store credit card.

Wording of a General Release

A general release agreement typically includes the amount of the payment, the name of the releasor, the name of the releasee, a statement of what the releasor is allowing the releasee to do, and the nature of the matter that gave rise to the claim. For example, an agreement with these terms might read:

“In consideration of the payment of $10,000, Releasor, Widget Credit, now and forever releases and discharges Releasee, Pat Doe, from claims arising out of Doe’s failure to pay an amount of $25,000 for a credit line for Doe’s business.”

A general release should also state what the releasor will do in consideration for the payment. An example of such a statement might be:

“Widget Credit promptly withdraws all complaints and reports regarding the claim and agrees to keep the claim and this general release private.”

Additional Clauses in a General Release

The general release language may state that in the event of a legal, administrative or arbitration action arising out of a general release, the prevailing party is entitled to recover its costs, attorney’s fees and expert witness fees from the nonprevailing party. This provision is not absolute; the court may strike or modify such a provision if one of the parties behaves in a manner contrary to the language of the agreement. A general release should contain the date that the releasor signed the agreement and a statement that the releasor expressly waives the provisions of Civil Code Section 1542.

Although a general release sounds broad, parties can alter the release to expand or reduce the claims covered by the agreement. For example, a general release may cover only claims asserted in litigation or arbitration, or it can be expanded to cover all claims resulting out of the interaction or relationship between the two parties. A general release can be limited to cover a certain period in time and also can be written to exclude certain parties, such as an individual who tends to file frivolous lawsuits.

Can Section 1542 Be Waived?

A party can waive Section 1542 by including specific language in the release agreement that expressly waives the protections of the statute. A party cannot waive Section 1542 just by saying that they waive the statute or by saying they want to waive unknown claims. There should be evidence outside of the written agreement about the waiver that the releasing party wanted to release unknown claims.

Evidence can consist of written conversations through emails, texts or letters between the parties about unknown claims. Evidence can also consist of testimony about verbal conversations between parties.

Writing a Waiver

A release agreement that contains an express waiver of Section 1542 should have separate lines for the initials or signature of the parties, and should provide that the parties are aware of the meaning of Section 1542. The agreement should state that the release allows the parties to waive the rights they have under the law.

The agreement should also state that the parties assume the risk of unknown claims. Even if the parties sign the agreement, they may be able to void the release. If a party or parties demonstrate they were moved to sign the release by fraud, mistake or undue influence, the court may strike all or part of the release.

Amending the Language of Section 1542

In 2018, the California legislature amended Section 1542 with another California law, Senate Bill 1431 (SB 1431). The bill said that in order for a general release to be effective, language to waive the protection of Section 1542 must expressly waive the protection of this law.

The amendment took effect on January 1, 2019. The slight adjustments to the statute made it so that parties would have a better chance of enforcing the waiver and not leave the waiver open to foreseeable challenges. The significant changes included adding the terms “releasing party” and “released party.”

That way the statute did not apply only to creditors. The changes also included stating that claims “would” rather than “must” have materially affected the settlement with the released party. In addition, the changes to the law involved requiring that a releasing party not have known of claims that would exist in their favor and that if known, the claims would have materially affected the releasing party’s settlement with the released party.

What Senate Bill 1431 Accomplished

SB 1431 is declaratory of existing law, meaning that it does not substantively change the existing legal protections. Yet because of the change in the statute, pre-2019 documents that had a Section 1542 waiver must be updated in order to be effective. A contracts or employment law attorney must update transactional documents with settlement releases. This includes settlements, amendments to the contracts and new contracts.

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